Nichols: Devon to focus only on North America

Mid-Continent District Meeting - Oklahoma

Devon is undergoing a fundamental shift in the way they do business. All of their international assets are on the auction block as they turn their focus solely to North America.  

 

Larry Nicholson, Co-Founder, Chairman, and CEO of Devon Energy Corporation, discussed the reasons for leaving some of the hottest oil and gas plays on the planet.

“We are in the process of selling all of our assets in Brazil, Azerbaijan, and China, which is of course a major change for us,” says Nichols. “The reason is simple—why incur the risk and expense of offshore international when we can do the same drilling at home?”

The companies holdings in North America have far exceeded expectations from just a few years ago, he says. In order to capitalize on those opportunities, Devon is selling all international assets.

 “We expect the after-tax proceeds to be between $4.5 and $7.5 billion,” he says. “We see unprecedented opportunity here in both gas and oil.”

 Currently, Devon is producing a 60 / 40 gas to oil percentage. In 2008, Devon spent $6.6 billion drilling wells; in 2009 it went to $4.9 billion; and plans for 2010 include a ramp-up to $5.6 billion, mostly in North America.

 Natural Gas Revolution

 Nichols says that one of the greatest challenges in the coming years is explaining to policymakers in Washington how the industry has changed.

 “In the past, we searched for one geologic trap after another, and the utilities said, rightly, that to have a steady supply we’d have to find new anticlines and new formations,” he says. “Now the source rock is the trap. We’ve solved the riddle of getting gas out of shale, and suddenly there are large areas of natural gas where you can drill well after well. It’s changed everything.”

 He says that analysts are focusing only on the initial decline of the wells, which can run at a decline rate of 50 to 60 percent.

 “Once they go through that, they settle out,” he says. “In the Haynesville, one of the most prolific wells got 1 bcf of gas out of it in less than 90 days … I’ll settle for the steep decline.”

 In the Barnett Shale, Devon has drilled 2,000 straight successful horizontal wells, over 4,000 wells without a dry hole, and have 7,500 undrilled locations.

 “That’s just us, and that’s what makes this different,” says Nichols. “It lets our industry go to the utilities and say ‘you don’t have to rely on us making more discoveries, we have these wells here, now, they’re proven, they’re surrounded by production, and we know how to do it.’ We can compete with coal very effectively in order to be a reliable long term supply.”

 Devon has expanded in the Woodford Shale in southeast Oklahoma with five rigs, and the other major field is the Cana-Woodford Shale.

 “Our typical well in the core area has 11 bcf of gas reserves in the middle of Oklahoma,” he says. “In the Cana, we estimate that our net reserves are 7 tcf. It’s here in the U.S., it’s cheap, reliable, and we can drill and stop whenever we want to.”

 The natural gas revolution also is changing politics of the U.S. Senate, he says. Shale plays are all around the country, which places additional Senators in play especially in those places where there was no oil or gas to speak of before, such as Pennsylvania and North Dakota with the Bakken Oil.

 “The importance of this is reliability of supply—the resources are here and in the US,” he says. “The fact that we are making the radical change in our business model by selling out the international plays we have, underscores the extent to which we believe in that. It is going to take a long time to develop those reserves, but it creates a lot of opportunities for everyone.”